Decided on April 17,1982



D.D. Vyas, Judicial Member - (1.) THIS appeal is by the assessee relating to the assessment year 1976-77. The assessee is an individual. For the previous year relevant to the assessment year 1976-77 the return under Section 139(1) of the Income-tax Act, 1961 ('the Act'), was filed on 5-7-1976 declaring an income of Rs. 48,620. Inter alia, the assessee claimed payment of Rs. 57,196 as payment in view of the agreement entered into between the assessee, his wife and son on 22-10-1968. According to the assessee, in view of the said agreement the said income never reached the assessee and before the income was earned it stood diverted and as such, the sum of Rs. 57,196 could not be the income of the assessee in the year of account.
(2.) The ITO completed the assessment after accepting the contention of the assessee. Consequently, the assessment was completed on 21-3-1979 on a total income of Rs. 66,955. Subsequently, the Commissioner after going through the records was of the opinion that a sum of Rs. 57,196, which was not added by the ITO in the assessment order was really the income of the assessee in the year of account. According to him, the assessment order passed by the ITO was erroneous and was also prejudicial to the interests of the revenue. So he issued show-cause notice to the assessee under Section 263 of the Act. Before the learned Commissioner, on behalf of the assessee, it was contended that in view of partial partition dated 22-10-1968 which was enteredi into between the assessee, his wife and son, each party got one-third share in the business assets which originally belonged to the HUF. There was also an agreement between the parties on 22-10-1968 and according to this agreement, there would be overriding title of the wife and son of the assessee, in respect of profits which may be earned in the business, which was to be conducted by the assessee either in his individual capacity or in partnership. It was further contended that the payment made to the wife and son of the assessee was not an application of income.
(3.) THE learned Commissioner, after considering the contention of the assessee and the material on record was of the view that the business carried on by the assessee was nothing but a joint venture by the assessee, his wife and son and a� such, this is a case of diversion of profit and not payment by overriding title. He further held that the payment of Rs. 57,196 was not a business expenditure. Thus, the learned Commissioner came to the conclusion that the sum of Rs. 57,196 paid to wife and son of the assessee was really income of the assessee and the same was to be taxed in his hands. Consequently, the learned Commissioner directed the ITO to include this amount in the total income of the assessee in respect of the assessment year 1976-77.;

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